Brexit would hit all household incomes, report finds

3 Jun 16

Brexit would hit the pockets of poor and middle-class UK citizens just as hard as the country’s elite, research from the Centre for Economic Performance at the London School of Economics has claimed.

The centre’s report said it was not to claim that the economic costs of a vote to leave following the vote on 23 June would be borne by the wealthiest people in the UK, while the majority of the population would be better off.

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“This claim is simply wrong: our research shows that the pain would be evenly spread across the income distribution,” CEP director John Van Reenen said.

Indeed, the CEP, which used data on household expenditures combined with estimates of the changes in the prices of goods and services after Brexit to come up with its findings, found that it would be the middle class, rather than the wealthy, whose income would be hit hardest.

In the short run, the average household would lose 1.8% (£754) of their real income per year as a result of the impact of Brexit under in the “most optimistic” scenario, where the UK joins countries like Norway in the European Economic Area.

In what the CEP defines as its “more realistic ‘pessimistic’ scenario”, the average household’s real income would fall by 4% (£1,637) in the short term. In the long run, when accounting for the effects on productivity, this could be as much as between 6% and 13.5% (£2,519-£5,573) of the household’s real income per year.

By contrast, the poorest tenth of households would lose between 1.7% and 3.6% of their incomes in the short run, and 5.7% to 12.5% in the short run. The richest households would lose 1.8%-3.9% and 6.3%-13.5%, meaning the average households were hardest hit, albeit only slightly.

CEP professor Gianmarco Ottaviano said the idea that Brexit would help reduce inequality by robbing from the rich and giving to the poor is “simply not borne out by the evidence”.

The study found similar results when looking at specific types of households, from pensioners and single people to families with children.

Swati Dhingra, another professor at CEP, noted that food prices are estimated to rise by between 3% and 5% in the event of a vote to leave.

Price hikes across transport (4%-7.5%), alcoholic drinks (4%-7%), food (3%-5%) and clothing (2%-4%) would all be likely, especially if the UK had to trade as a member of the World Trade Organisation, as these product groups all rely on imports. Prices for services on the other hand would rise the least. “Brexit won’t just make a European holiday more expensive,” Dhingra added. “It will tighten the budget of households of all incomes.”

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